The Stock Market's 'Mission Accomplished' Moment
Will all-time highs bring out buyers or sellers?
Looking out at the road rushing under my wheels; looking back at the years gone by like so many summer fields.
-- Jackson Browne
While on the train into the city this morning for some early segments on Yahoo! Finance, I discussed my upcoming segment on the market with the producer. I suggested we call it, "Mission Accomplished!" as there has been a Herculean effort to manipulate prices higher since the depths of the financial crisis, and here we are: all-time highs in the S&P (INDEXSP:.INX).
Whether we dub it "The Federal Reserve's 'Mission Accomplished' Moment" or "President Obama's 'Mission Accomplished' Moment" is a moot point; the efforts have been intertwined and coordinated. Against all odds, with the financial system teetering on the brink of collapse, they manufactured a 160% rally in the S&P since March 2009.
It's been relentless, it's been impressive, and for those seeking historical precedent, it's been extremely frustrating.
With the DC drama behind us-for now-and earnings upon us, the collective wisdom has embraced the notion that the path of least resistance is due north into year-end. Most fund managers are trailing their benchmark and can't afford to wait for a pullback, or so the thinking goes. You can feel anxiety sweeping in the streets; the question, of course, is whether it continues to self-perpetuate.
With 20% of the S&P having reported third quarter earnings, 55% have beaten top-line estimates and 71% have beaten earnings-per-share estimates. That's par for the course as these things go, but it remains to be seen how much it will matter. Of our four primary metrics, psychology remains the primary driver of asset classes with structural influences (rates) a close second. Fundamental data and technical analysis follow, playing the roles of post-rationalization.
There are two dynamics throwing caution to the wind; the first is the long-term chart of the VXO (INDEXCBOE:VXO), which is edging toward massive support (this "fear proxy" is a contra-tell for the market, rising when it falls and vice versa). While it dribbled along these levels for years at a time (2004-2006), it's worthy of a mention as we fit together the pieces of the market puzzle.
The other caveat is the price action in select stocks-Tesla (NASDAQ:TSLA), Yelp (NYSE:YELP), Priceline (NASDAQ:PCLN), Netflix (NASDAQ:NFLX), LinkedIn (NYSE:LNKD), Facebook-which have enjoyed a parabolic frolic, raising the question of whether they've entered the "panic" phase of our psychological continuum (denial, migration, panic).
And of course, there's the perception that corporate America has a mulligan on fourth quarter earnings following the government shutdown. In short, with the downside rationalized and the upside all but expected, we must ascertain if the easy trade is a bit too easy.
One thing for sure, we'll have plenty of data to digest this week, including earnings from Netflix, McDonald's (NYSE:MCD), Coach (NYSE:COH), Boeing (NYSE:BA) Caterpillar (NYSE:CAT), AT&T (NYSE:T), Dow Chemical (NYSE:DOW), Ford (NYSE:F), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN). We'll also have the EU summit starting on Thursday as it looks to strengthen policy coordination and increase regulatory safeguards.
Watch the banks, breadth, high-beta, and S&P 1730ish (previous breakout) as we together find our way.
And good luck out there-we do indeed live in interesting times.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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